In October 2015, the U.S. began its officially shift to EMV chip cards. Although the change was a decade behind the EU, and a few years after Canada made the switch, it is still a necessary step to protect consumer financial information during in-store purchases.
Short for Europay, MasterCard, and Visa, EMV was developed as the global standard for credit card processing. The combination of the EMV chip embedded in credit and debit cards and the chip reader technology reduce the risk of counterfeit cards and fraudulent credit card transactions.
There are lots of benefits and few drawbacks to the new system. Merchants and financial institutions have to follow new EMV compliance rules, which include installing new processing systems in stores and at point of sale locations like gas pumps. Consumers have to learn a new process beyond just swiping their card when it’s time to check out.
Although using a two-step method that includes inserting the payment method into a chip card reader and then entering a pin number is more time-consuming, it’s worthwhile to produce a transaction where the information is nearly impossible to steal.
To help you better understand EMV technology, here we’ve outlined what you need to know about how it works. You’ll find details on things like how it protects against fraud, how to use an EMV card, and what to expect if you travel internationally.
EMV Cards Are More Secure
Prior to chip cards, credit and debit cards came with a magnetic stripe that held all of your financial data. That information was static and unchanging, so if anyone accessed it at any time, they would have all of the necessary information to make future purchases. It was relatively easy to replicate, so counterfeiters capitalized on it and stole upwards of $16 billion from Americans in 2016.
Chip cards are different. That tiny metallic box is actually a mini computer, and every time you insert your payment method into an EMV reader, it creates a unique transaction code that can’t be used for any other purchases.
If a criminal tried to steal your information during that sale, their traditional method of duplicating your card wouldn’t work because they won’t be able to use the transaction number ever again and any future purchase would be denied.
While EMV technology won’t completely eliminate data breaches from happening, it will make it much more difficult for hackers to use the information to steal money from consumers.
It’s already making a difference in counterfeit fraud. In March 2017, Visa said that their chip-enabled merchants saw a 58 percent drop compared to the prior year. MasterCard also noted improvements from April 2015 to April 2016 with a 54 percent decrease in counterfeit fraud costs.
EMV Cards Take Longer to Process a Transaction
There aren’t many drawbacks to chip card technology, but it is worth noting that transaction times are longer than with a magnetic stripe card.
Although both types use a two-step process for payment, card reading, and transaction verification, they are read in a different way. With a magnetic card, you would do a quick card swipe, but EMV cards require you to insert your card into a terminal to begin the process. Around the industry, this is known as “card dipping.”
Once your card is dipped, the data begins to transfer between the chip and the financial institution to verify that it’s legitimate and to create the unique transaction code. While it’s a fast process, it isn’t as instantaneous as a magnetic card swipe. In addition, if a consumer is impatient and removes their card too quickly, the processing system will require you to start over
You’ll Still Need to Enter a PIN or Sign for Your Transaction
Depending on the verification method tied to your EMV card, you’ll still need to either enter a PIN number or sign for your purchase. If you have a Chip-and-PIN card, you’ll need to input your four to eight-digit PIN number when you check out. If you have a Chip-and-Signature card, you’ll need to sign.
In most cases, you can expect to follow a process similar to what your card required before the conversion. For example, if your debit card has always required you to enter a PIN number when you make a purchase, that will likely stay the same unless the terminal doesn’t have that capability. In that case, you’ll be asked for a signature as part of the two-step process when you pay at check out.
Chip-and-PIN cards are more secure, and you can expect that financial institutions will transition away from signatures and to PINs in the future.
What is EMV Compliance and Who is Liable For Fraud?
As of October 1, 2015, U.S. retailers were required to be EMV compliant. This means they need to have adopted chip card reader equipment at their locations and are using the upgraded technology. After this date, retailers who aren’t EMV compliant are responsible for any card-present fraud that occurs.
Typically, if an in-store transaction is made with a fake, stolen, or compromised credit or debit card, a consumer can attempt to collect those damages from the issuing financial institution. However, if the purchase was made at a retailer without chip reader technology, the burden falls on the merchant to reimburse those costs.
Essentially, whoever is the least EMV complaint at the time of the transaction is responsible should any fraud occur. Any retailer without a chip reader would be considered the least compliant, and therefore liable for damages if someone makes a fraudulent purchase at their location.
This change, along with several others along the way like those that brought ATM’s and gas pumps into compliance, has assisted with bringing the entire payment industry on board. The desire to avoid liability costs outweighs the equipment investment required for most retailers.
You Can Still Use Your Old Cards
You can also still use your magnetic card if you haven’t yet received an upgraded one from your financial institution.
Although the transition to EMV technology began in October 2015, it’s far from complete. There are over 13,000 financial institutions in the U.S. who need to issue new debit and credit cards to their cardholders. Since it’s such a massive undertaking, many companies have unique roll out strategies which may mean they’re not 100 percent compliant yet.
CPI Card Group estimates around 70 percent of debit and credit cards now have chips in them, and they expect that number will continue to rise as cards expire and you receive replacements in the mail. Some companies began sending out replacement cards immediately, but as the process is both time-consuming and expensive, others have implemented a rollout strategy that includes only sending upgraded cards once your existing one is due to expire.
If you haven’t yet received a chipped card, you can always contact your financial institution and request one. They may be able to expedite the process or give you information on when you can expect your upgraded replacement.
Chipped cards will still work with traditional magnetic stripe credit card machines, but be warned that you’re missing the extra level of security that the chip provides, and your information might be compromised as a result.
Chip Cards Will Work Without a Chip Reader
In addition to the thousands of financial institutions implementing changes across the nation, there are also over 5 million retailers who accept credit cards as a form of payment that needs to upgrade their hardware.
While most larger retailers have completed the switch, not every point of sale system is 100 percent compliant. EMV cards will still have a magnetic stripe, so it’s possible to use them at locations that still have a traditional point of sale card reader. Although they won’t have the added level of security provided by the unique transaction code, the payment will still go through for a purchase.
International Travel and EMV Cards
While the U.S. is often an early adopter of new technologies, that’s not the case with EMV cards. As the last major market still using the magnetic-stripe card system, U.S. consumers have struggled in the past using credit or debit cards when traveling abroad. Many European countries won’t accept magnetic-stripe cards because of the high rate of fraud, and the liabilities associated with them.
Luckily, as the nation makes the transition to chip cards, travelers have more payment options abroad. If you have a chip-and-PIN card, it’s very likely that an international retailer will accept it as a form of payment. Chip-and-signature cards are less likely to be accepted, though some merchants may be willing to take the risk because of the added layer of security.
Thanks to how difficult it is to counterfeit EMV cards, they are more likely to be accepted in major markets when you travel.